Traders lose money
Hello!
I hear that many/most traders lose money. To what extend is this true? I mean like 70% of traders lose money and they end up with their basic salary and no bonus? Or 0.01% ?
Any insight?
thanks!
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Retail traders lose money, most professionals don't. If a professional trader is losing money than he will not be a professional trader for much longer.
thanks, so what are the chances for a graduate coming into trading, not to make it to become a professional trader? I know it is an individual thing, but I would like to know the chances?
Everyone loses money. The best trader might be right 1/3 of the time. If they make 5x on their wins compared to their losses, over the long run they will be incredibly profitable.
You have to risk money to make money, and that is most certainly true in trading.
This is definitely correct, but I think OP was referring to the net P/L of a trader at the end of the year.
What exactly is a trader's P&L in sales and trading not prop-trading? Why would they lose money on a trade, wouldn't they always be making a bid ask?
If the trade moves against you before you can get out of the trade you still lose money...
You are still taking risk and inventory-ing, not just brokering..
Bid/ask doesn’t really exists anymore. It’s either taken by hft or your doing something exotic and hoping your hedge makes sense.
Is HFT the replacement for old school human market making? This isnt clear to me
Bid ask absolutely still exists, just not in certain products. HFT only dominates certain products like cash equities
Interned on the swaps desk at a top 3 rates desk and desk head said about 30% is revenue is still attributable to bid offer. In FX bid ask is little to P and L. In illiquid stuff like high yield credit or structured products, bid offer is very profitable.
Ya that's what I thought but how often does that actually happen?
Also, just a quick example. Lets say as a trader you take on 100 shares of apple. Now what do you do? Is your job to get rid of it as quickly as possible? Or can you hold on to it if you choose to?
Assuming you're not in prop, the trades moving against/for you will be normally distributed meaning your P/L will be close to what you made in gross commission over the course of a year.
Thanks for the reply. As a trader, are you constantly calculating the bid ask by yourself? Or is there something that does it for you?
You are asking if I am constantly calculating what all the other traders in the market think my position is worth? No.
then how do you determine your bid ask?
I only have an internship under my belt, but from my experience you determine it off of the markets bid/ask, as well as your opinion of if you'd rather be selling or buying this position, which breaks down into your current inventory and the direction you think it's moving.
if you look at the DOM (depth of market) for any security (a ladder of prices, with bids on the left and offer on the right)...the distance in price between the highest bid, and the lowest offer is the "market bid/ask spread". For example, looking at crude oil futures, the bid/ask spread is typically very tight and keeps the minimum for that market of 1 cent. However, in securities that are not super liquid and don't have lots of trading activity (most stocks, and a few commodities), the bid/ask spread can be much wider (and changes as market volatility changes)...so there is no set rule, other than the minimum increment set by the exchange.
Then we get to the off screen institutions trading (most all securities can trade "off screen" for sufficiently large size...this is mostly how customers trade with the dealer banks)...if you look closely at the DOM, you will see the actual volumes on the bid and offer are small...but what if you are in the dealer seat at GS, and a customer asks you to bid on 5000 contracts (and the market bid/ask market is 30 contracts at 35 contracts with a 1 cent bid/ask spread...which you will need to use to get out of the position)? Would you show that same tight market for such a large size? No, you would normally back off the market price and show something with a little more room. In this case, you would probably bid 5-10 cents below the market bid for 5k contracts. Otherwise, how do you plan to get out of the position without losing money? You generally assume that your customers trading large size are going to be correct (they usually are in the short term), and so you want to get out as soon as possible. THIS is the job of being an institutional market maker...determining how aggressive you can be in quoting a bid/ask spread for large size without losing money.
Lol 5-10c off mids for a 5000 lot trade. wrong.
Simply speaking the trading day begins with a pre-opening process. Here the exchange or the specialist runs an opening auction process to determine the opening price. Its purely algorithmic and no discretion is applied.
The trading price is set to maximise volume. The filled volume at any particular price is given by Min(Supply, Demand) where buy orders form the demand function and sell orders form the supply function. All buy orders at or above this price and all sell orders at or below this price is filled.
Generally there will be a situation where the volume maximising price does not have equal supply and demand. In this case the earliest submitted orders will be filled.
After the opening period the order book will contain bids below the current market price and offers above it.
The difference between the best bid and best offer is known as the bid ask spread.
90 % of Traders lose money in the Markets ?! Nope. (Originally Posted: 08/22/2016)
Note: I will use the word “Trader” as a vague term referring to day-traders, scalpers, investors & arbitrageurs.
I always bump into articles talking about how “90 % of Traders lose money!”
Nothing is further from the truth; the inputs used to determine the percentage of profitable traders/investors are flawed and irrelevant, here is why:
A significant portion of the samples used in those statistics (retail traders) consists of:
Gamblers, doctors, nurses, lawyers, teachers, engineers.... Now how does taking these guys into consideration when building statistics for a sophisticated industry seem right in the first place?
Showing that a Nurse sucks at forecasting the Market Direction is irrelevant just as it’s irrelevant to call a Trader to provide medical care to a patient in an emergency room and analyzing his performance. Same for asking a Trader to handle a Marketing Campaign or anything outside his field of expertise, he will fail and worse than they fail in trading.
I personally believe that when we want to construct a relevant poll or statistic about the profitability of Traders, only the below types of traders/investors should be taken into consideration:
1) People who have a formal education in Economics or Finance (yes brokerages ask you about your education when opening an account so it shouldn’t be that hard to export the relevant data and study it) 2) Proprietary Traders in Prop Firms 3) Hedge Fund Traders and Investors 4) Traders at IBs although this might not be as relevant as a prop trader since S&T/Market Making don’t necessarily make money from directional exposures.
My idea is that only well informed & experienced participants should be taken into account.
So what do you guys think about this? In your point of view what percentage of traders are profitable if we only take into account the types of participants mentioned above?
Even when we take into account all retail traders, the numbers are a lot better than "90 % loose money".
I leave you with a link to Interactive Brokers showing a proper figure from their Retail & Pro accounts:
https://www.interactivebrokers.com/en/index.php?f=3731
Pretty decent if you ask me.
that is why there are educational materials available all throughout the web, trading tools and trading signals to help us determine if a currency pair is eligible to be bought or sold at any given time and to minimize the risks and chance of losing.
.
Do wall street traders still get paid if they lose money for the year? How many chances do traders get? (Originally Posted: 06/02/2016)
Do wall street traders still get paid a salary if they had a overall 20% loss on their stocks for the year? Another question is, typically how many chances does a wall street trader get to lose money until the employer is fed up with their losses and fires them?
I think that this discussion officially went bonkers.
OP, it really depends. For example, as a Proprietary Trader I receive no salary and even managed to lose money (slightly negative PnL) in 2017. So technically I 'made no money.'
The salary/bonus situation varies a lot depending on your role and the firm, but in the end of the day you have to make money to survive in this business. Otherwise it would be wasted time.
Sell-side traders PnL isn't measured in %. It's measured in $. If someone has a strong track record or management responsibilities he/she may still get paid if their desk or department did well. There is no hard and fast rule.
True that pro traders lose ~40% or more of their trades? (Originally Posted: 10/04/2012)
1stly - this is NOT for scalpers who are scalping for 1-2 ticks and must feel the market and be right the vast majority of the time to profit.
I've heard that the "best of the best" lose ~40%+ of their trades. I understand high win rate makes the most money, but just curious what the sweet spot is in the prop world.
Thanks
yeah sky's the limite, then put a negative sign before it.
Definitely true. Traders that set up to make 3x what they risk only need to get 25% of their trades right to breakeven (less transaction costs of course). If you read the first market wizards book, Paul Tudor Jones talks about how he might try to buy the dip in something (or sell a rally) a few times before finally getting it right. This is not my favorite way of trading but right now when trends are barely there, this has been working pretty well.
i dont know, but anything above 50:50 seems good, right?
There is no way you can generalize this. Different styles of trading will have different win percentages, different risks, and different rewards.
A trader that only trades when there is essentially a risk-free arbitrage, will have close to 100% win rate. For example, merger arbs or traders writing way out of the money options.
A trader that goes for the home run may only be right on 1% of trades, but that 1% pays off huge. For example, VC has a lot of failures which are made back by the occasional home run. Same would be true for a trader that goes long way out of the money options.
Any combination off variables that satisfy (% Win) (Reward) + (% Loss) (-Risk) > 0 exists out there and within each style of trading there are their own "bets of the best".
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hello everyone, well I'm no expert so far and not for soooo long into trading. But I think you can't say that in such a general way. Real professional traders - I don't believe they lose often money - because then they couldn't afford to be for many years a professional. so it depends. the risk is always there. determining the bid ask also.
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